What would retirement look like without savings? That's not as crazy a question as it sounds. By many estimates, you are going to need at least 70% of your income in retirement. Unfortunately, in this instant gratification society where keeping up with the Joneses is more important than saving money for the future, having a nest egg at all is considered a big achievement.

According to a 2018 study by Northwestern Mutual, 21% of Americans have no retirement savings at all, while 33% of baby boomers have $25,000 or less saved. In this debt-driven society the thought of retiring penniless may not keep you up at night, but not having any money to support you when you stop working should. Let's look at what life could be like with nothing much in the bank when you hit your late 60s or beyond.

Fast Fact

The average monthly Social Security benefit in 2019 is only $1,461.

Social Security Will Be Your Main Income

Retirement means the end of a steady income, which is why having a nest egg is so important. Let’s say your annual income was $100,000 when you were working. That means you’ll need around $70,000 a year when you are out of the workforce in order to maintain your lifestyle. Without savings, you are either going to have to earn that money or cut way back if you have to rely on Social Security. 

For many people who enter retirement without any saved cash, their only source of income ends up being Social Security. According to the Center on Budget and Policy Priorities, "For about half of seniors, [Social Security] provides at least 50 percent of their income, and for about 1 in 5 seniors, it provides at least 90 percent of income, across multiple surveys." That included a 2017 study from the Social, Economic & Housing Statistics Division of the U.S. Census Bureau.

With the average Social Security check standing at $1,461 in 2019, it can be a big shock for seniors who were used to bringing in much more. Getting by is going to be a stretch when Social Security is your only source of income. Although there are ways to maximize it, it's still best as an adjunct to personal savings. Throw in healthcare costs, a mortgage, debt, and other expenses in the mix, and Social Security isn’t going to be enough.

Key Takeaways

  • With retirement quite possibly lasting 20 years or longer, saving for it is more vital than ever.
  • Lack of retirement savings can require you to downsize your living quarters.
  • Many seniors without adequate retirement funds have to take a part-time job.
  • Continuing to work during retirement can take a toll on your health.

You’ll Have to Downsize Your Lifestyle

Even if you were doing well in your working years, if you didn’t stow away any money you are going to have to downsize your lifestyle in order to get by in retirement. That will mean possibly moving into a smaller home or apartment; forgoing extras such as cable, an iPhone, and a gym membership; even swapping your current car for a less costly one—after you drive it into the ground.

It could even mean moving in with your adult children, which is the case for many seniors. After all, even if you make a nice profit on the sale of your house, your retirement can easily last more than 20 years, and there is a distinct possibility you will outlive the proceeds of the sale of your house and other assets you sell off.

Working Part Time Won’t Be a Choice

In order to maintain yourself in retirement you may need an extra income stream. This often means you’ll either have to go back to work or get a part-time job. That isn’t bad in and of itself, but when you need money you can’t be choosy about what job you accept, which can get old very quick.

The surge in the global workforce thanks to the internet makes it easier for seniors to work remotely. Retailers are also more than willing to hire retirees because they tend to be reliable and loyal. However, if your health fails and a part-time job isn’t doable, without savings you are going to face real financial hardship.

Taking on a Roommate Will Be a Must

With the likelihood of Social Security not being enough, seniors who don’t save for retirement are going to have to generate income and often turn to their house as a result. For some that means taking on a roommate, which can be fraught with risks.

Being a landlord is fine if you don’t mind sharing space, but if you are the type of retiree who values peace and quiet and doesn’t like to share, renting a room may be a bitter pill to swallow. For others it means a reverse mortgage, which can be a costly and risky choice.

Retirement Won’t Even Be on the Table

If you don’t put any money away for retirement and aren’t willing to sacrifice and overhaul your lifestyle, then retirement won’t be an option at all, particularly if Social Security isn’t enough to live on.

Many people forego retirement and work for as long as possible, largely because they don’t have enough saved. Unfortunately, working longer will take a toll on your health and psyche and isn’t the ideal option.

The Bottom Line

Workers of all ages have long heard about the need to save for retirement and the importance of saving enough, yet far too often people shrug off the advice and don’t put even a penny into a retirement savings account. They do so at their own peril. Without money saved for a retirement that could easily last 20 or more years, retirees are going to be forced to downsize their home and life, take on a roommate, get a part-time job, or even forgo retirement altogether.